Driven Brands Holdings Inc. [DRVN] Filings

10-Q 1 drvn-20210925.htm 10-Q drvn-20210925

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 25, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-39898

Driven Brands Holdings Inc.

(Exact name of Registrant as specified in its charter)


Delaware
(State or other jurisdiction of incorporation or organization)


47-3595252
(I.R.S. Employer Identification No.)


440 South Church Street, Suite 700
Charlotte, North Carolina
(Address of principal executive offices)


28202
(Zip Code)

Registrant’s telephone number, including area code: (704) 377-8855


Title of each class
Common Stock, $0.01 par value


Trading Symbol
DRVN


Name of each exchange on which registered
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐
Non-accelerated filer ☒


Accelerated filer ☐
Small reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of November 5, 2021, the Registrant had 167,379,785 shares of Common Stock outstanding.

Driven Brands Holdings Inc.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			3
Consolidated Statements of Operations			3
Consolidated Statements of Comprehensive Income (Loss)			4
Consolidated Balance Sheets			5
Consolidated Statements of Shareholders’/Members' Equity			6
Consolidated Statements of Cash Flows			7
Notes to the Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			47
Item 4. Controls and Procedures.			48

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 5. Other Information			49
Item 6. Exhibits			50

Signatures			51

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management, and expected market growth are forward-looking statements. In particular, forward-looking statements include, among other things, statements relating to: (i) our strategy, outlook and growth prospects; (ii) our operational and financial targets and dividend policy; (iii) general economic trends and trends in the industry and markets; and (iv) the competitive environment in which we operate. Forward-looking statements are not based on historical facts, but instead represent our current expectations and assumptions regarding our business, the economy and other future conditions, and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. It is not possible to predict or identify all such risks. These risks include, but are not limited to, the risk factors that are described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, as supplemented by the “Risk Factors” section in our Quarterly Report on Form 10-Q for the quarter ended June 26, 2021 and in this Quarterly Report as well as in our other filings with the Securities and Exchange Commission, which are available on its website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements represent our estimates and assumptions only as of the date on which they are made, and we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three months ended				Nine months ended
(in thousands, except per share amounts)	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Revenue:
Franchise royalties and fees	$	38,953	$	36,520	$	107,240	$	94,214
Company-operated store sales	213,755		140,788		603,808		323,339
Independently-operated store sales	47,941		30,595		160,483		30,595
Advertising fund contributions	19,762		14,927		56,665		42,429
Supply and other revenue	50,737		44,932		147,199		125,115
Total revenue	371,148		267,762		1,075,395		615,692
Operating expenses:
Company-operated store expenses	130,520		85,668		367,095		202,333
Independently-operated store expenses	27,764		17,995		89,664		17,995
Advertising fund expenses	19,762		14,927		56,665		42,429
Supply and other expenses	28,330		25,813		80,417		70,167
Selling, general and administrative expenses	71,565		56,586		218,549		153,107
Acquisition costs	636		12,076		2,674		13,287
Store opening costs	666		119		1,360		1,921
Depreciation and amortization	28,447		16,221		78,722		32,656
Asset impairment charges and lease terminations	(270)		321		3,161		6,732
Total operating expenses	307,420		229,726		898,307		540,627
Operating income	63,728		38,036		177,088		75,065
Other expenses, net:
Interest expense, net	17,688		29,594		52,390		64,973
Net loss (gain) on foreign currency transactions	1,074		(2,230)		6,356		55
Loss on debt extinguishment	—		673		45,576		673
Total other expenses, net	18,762		28,037		104,322		65,701
Net income before taxes	44,966		9,999		72,766		9,364
Income tax expense	11,880		5,888		24,445		6,109
Net income	33,086		4,111		48,321		3,255
Net (loss) income attributable to non-controlling interests	(38)		32		(68)		(34)
Net income attributable to Driven Brands Holdings Inc.	$	33,124	$	4,079	$	48,389	$	3,289

Earnings per share(1):
Basic	$	0.20	$	0.04	$	0.30	$	0.03
Diluted	$	0.19	$	0.04	$	0.29	$	0.03
Weighted average shares outstanding(1):
Basic	162,635		111,950		160,030		96,643
Diluted	166,630		111,950		163,968		96,643

(1) Shares and earnings (loss) per share for 2020 have been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


	Three months ended				Nine months ended
(in thousands)	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Net income	$	33,086	$	4,111	$	48,321	$	3,255
Other comprehensive income (loss):
Foreign currency translation adjustment	(30,844)		(2,850)		(28,675)		(14,096)
Unrealized gain from cash flow hedges, net of tax	(1)		552		29		552
Defined benefit pension plan actuarial gain, net of tax	3		—		131		—
Other comprehensive loss, net	(30,842)		(2,298)		(28,515)		(13,544)
Total comprehensive income (loss)	2,244		1,813		19,806		(10,289)
Comprehensive income (loss) attributable to non-controlling interests	(47)		97		(8)		(34)
Comprehensive income (loss) attributable to Driven Brands Holdings Inc.	$	2,291	$	1,716	$	19,814	$	(10,255)

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share amounts)	September 25, 2021		December 26, 2020
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	115,365	$	172,611
Restricted cash	135		15,827
Accounts and notes receivable, net	110,907		84,805
Inventory	44,259		43,039
Prepaid and other assets	26,022		25,070
Income tax receivable	2,619		3,055
Advertising fund assets, restricted	39,698		29,276

Total current assets	339,005		373,683
Notes receivable, net	2,748		3,828
Property and equipment, net	1,121,204		827,392
Operating lease right-of-use assets	905,527		884,927
Deferred commissions	9,878		8,661
Intangibles, net	817,665		829,308
Goodwill	1,810,085		1,727,351
Total assets	$	5,006,112	$	4,655,150
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	72,458	$	67,802
Accrued expenses and other liabilities	217,589		190,867
Income tax payable	2,791		3,513
Current portion of long term debt	18,342		22,988
Advertising fund liabilities	25,457		20,276
Total current liabilities	336,637		305,446
Long-term debt, net	1,677,337		2,102,219
Deferred tax liability	261,906		249,043
Operating lease liabilities	843,925		818,001
Income tax receivable liability	155,970		—
Deferred revenue	24,770		20,757
Long-term accrued expenses and other liabilities	30,070		53,324
Total liabilities	3,330,615		3,548,790
Common stock, $0.01 par value, 900 million shares authorized at September 25, 2021 and December 26, 2020; 167 million and 127 million shares issued and outstanding at September 25, 2021 and December 26, 2020, respectively(1)	1,674		565
Additional paid-in capital	1,604,342		1,055,172
Retained earnings	80,364		31,975
Accumulated other comprehensive income (loss)	(12,047)		16,528
Total shareholders’ equity attributable to Driven Brands Holdings Inc.	1,674,333		1,104,240
Non-controlling interests	1,164		2,120
Total shareholders' equity	1,675,497		1,106,360
Total liabilities and shareholders' equity	$	5,006,112	$	4,655,150

(1) Common stock at December 26, 2020 has been adjusted to reflect an implied 88,990-for-one stock split that became effective on January 14, 2021. See Note 1 for additional information.

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’/MEMBERS’ EQUITY (Unaudited)


in thousands	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders'/members' equity
Balance as of December 26, 2020	$	565	$	1,055,172	$	31,975	$	16,528	$	2,120	$	1,106,360
Net income (loss)	—		—		(19,939)		—		7		(19,932)
Other comprehensive loss	—		—		—		(9,085)		—		(9,085)
Equity-based compensation expense	—		983		—		—		—		983
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions	1,082		660,418		—		—		—		661,500
Common stock issued upon underwriter's exercise of over-allotment	48		99,177		—		—		—		99,225
Repurchase of common stock	(21)		(42,956)		—		—		—		(42,977)
Exercise of stock options	—		25		—		—		—		25
Establishment of income tax receivable liability	—		(155,970)		—		—		—		(155,970)
IPO fees	—		(14,757)		—		—		—		(14,757)
Other	—		—		—		—		(63)		(63)
Balance as of March 27, 2021	$	1,674	$	1,602,092	$	12,036	$	7,443	$	2,064	$	1,625,309
Net income (loss)	—		—		35,204		—		(37)		35,167
Other comprehensive loss	—		—		—		11,412		—		11,412
Equity-based compensation expense	—		1,028		—		—		—		1,028
At-Pac divestiture	—		—		—		—		(948)		(948)
Other	—		(25)		—		(1)		—		(26)
Balance at June 26, 2021	$	1,674	$	1,603,095	$	47,240	$	18,854	$	1,079	$	1,671,942
Net income (loss)	—		—		33,124		—		(38)		33,086
Other comprehensive income (loss)	—		—		—		(30,902)		60		(30,842)
Equity-based compensation expense	—		933		—		—		—		933
Exercise of stock options	—		314		—		—		—		314
Other	—		—		—		1		63		64
Balance at September 25, 2021	$	1,674	$	1,604,342	$	80,364	$	(12,047)	$	1,164	$	1,675,497

Balance as of December 28, 2019	565		242,240		41,983		3,626		1,464		289,878
Cumulative effect of ASU 2016-02 adoption	—		—		(4,012)		—		—		(4,012)
Cumulative effect of ASU 2016-13 adoption	—		—		(1,797)		—		—		(1,797)
Balance as of December 29, 2019	565		242,240		36,174		3,626		1,464		284,069
Net income (loss)	—		—		3,289		—		(34)		3,255
Other comprehensive (loss)	—		—		—		(13,544)		—		(13,544)
Equity-based compensation expense	—		508		—		—		—		508
Common stock issued in a business combination	—		809,000		—		—		—		809,000
Acquisition of subsidiary with noncontrolling interest	—		—		—		—		400		400
Balance at September 26, 2020	$	565	$	1,051,748	$	39,463	$	(9,918)	$	1,830	$	1,083,688

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine months ended
(in thousands)	September 25, 2021		September 26, 2020
Net income	$	48,321	$	3,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	78,722		32,656
Non-cash lease cost	56,563		26,254
Loss on foreign denominated transactions	9,301		55
Gain on derivatives not designed as hedges	(2,945)		—
Bad debt expense	2,535		4,829
Asset impairment costs	3,161		6,732
Amortization of deferred financing costs and bond discounts	5,139		7,176
Benefit (provision) for deferred income taxes	15,898		(4,524)
Loss on extinguishment of debt	45,576		673
Other, net	4,257		1,566
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable, net	(28,787)		(12,349)
Inventory	(3,279)		(1,328)
Prepaid and other assets	(18,414)		1,755
Advertising fund assets and liabilities, restricted	5,818		(554)
Deferred commissions	(1,205)		(1,810)
Deferred revenue	3,983		3,438
Accounts payable	(3,903)		10,311
Accrued expenses and other liabilities	25,595		8,926
Income tax receivable	(320)		7,551
Operating lease liabilities	(47,821)		(28,157)
Cash provided by operating activities	198,195		66,455
Cash flows from investing activities:
Capital expenditures	(93,627)		(35,124)
Cash used in business acquisitions, net of cash acquired	(442,488)		8,575
Proceeds from sale-leaseback transactions	66,391		—
Proceeds from sale of At-Pac business	1,532		—
Proceeds from disposal of property and equipment	5,471		—
Cash used in investing activities	(462,721)		(26,549)
Cash flows from financing activities:
Payment of contingent consideration related to acquisitions	—		(2,783)
Payment of debt extinguishment and issuance costs	(2,153)		(12,639)
Proceeds from the issuance of long-term debt	—		175,000
Repayment of long-term debt	(716,542)		(11,619)
Proceeds from revolving lines of credit and short-term debt	441,800		152,101
Repayments of revolving lines of credit and short-term debt	(212,800)		(191,600)
Repayment of principal portion of finance lease liability	(1,760)		(731)
Proceeds from failed sale-leaseback transactions	—		3,432
Proceeds from initial public offering, net of underwriting discounts	661,500		—
Net proceeds from underwriters' exercise of over-allotment option	99,225		—
Repurchases of common stock	(43,040)		—
Payment for termination of interest rate swaps	(21,826)		—
Stock option exercises	339		—
Other, net	102		—
Cash provided by financing activities	204,845		111,161


Effect of exchange rate changes on cash	(2,285)		468
Net change in cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted	(61,966)		151,535
Cash and cash equivalents, beginning of period	172,611		34,935
Cash included in advertising fund assets, restricted, beginning of period	19,369		23,091
Restricted cash, beginning of period	15,827		—
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, beginning of period	207,807		58,026
Cash and cash equivalents, end of period	115,365		184,356
Cash included in advertising fund assets, restricted, end of period	30,341		25,205
Restricted cash, end of period	135		—
Cash, cash equivalents, restricted cash, and cash included in advertising fund assets, restricted, end of period	$	145,841	$	209,561


Supplemental cash flow disclosures - non-cash items:
Accrued capital expenditures, end of period	$	6,123	$	984
Supplemental cash flow disclosures - cash paid for:
Interest	$	53,842	$	61,887
Income taxes	10,593		3,141

The accompanying notes are an integral part of these consolidated financial statements.

DRIVEN BRANDS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Description of Business

Description of Business

Driven Brands Holdings Inc., together with its subsidiaries (collectively, the “Company”), is a Delaware corporation and is the parent holding company of Driven Brands, Inc. and Shine Holdco (UK) Limited (collectively, “Driven Brands”). Driven Brands is the largest automotive services company in North America with a growing and highly-franchised base of more than 4,300 franchised, independently-operated, and company-operated locations across 49 U.S. states and 14 other countries. The Company has a portfolio of highly recognized brands, including Take 5 Oil Change®, Meineke Car Care Centers®, MAACO®, CARSTAR®, and 1-800-Radiator & A/C® that compete in the automotive services industry. Approximately 81% of the Company’s locations are franchised or independently-operated.

Initial Public Offering and Secondary Offering

On January 14, 2021, the Company completed an initial public offering (the “IPO”) of approximately 32 million shares of common stock at $22 per share. On February 10, 2021, the Company’s underwriters exercised their over-allotment option to purchase approximately 5 million additional shares of common stock. The Company received total proceeds of $761 million from these transactions, net of the underwriting discounts and commissions.

The Company used the proceeds from the IPO, along with cash on hand, to fully repay the First Lien Term Loan, Second Lien Term Loan, and revolving credit facility assumed as part of the acquisition of International Car Wash Group (“ICWG”) in 2020 (collectively, the “Car Wash Senior Credit Facilities”), which totaled $725 million with interest and fees. The Company recognized a $46 million loss on debt extinguishment related to this settlement, primarily related to the write-off of unamortized discount. The Company cancelled the interest rate and cross currency swaps associated with these debt agreements as part of the settlement. The Company also used $43 million in proceeds to purchase approximately 2 million shares of common stock from certain of our existing shareholders.

On August 2, 2021, the Company filed a Registration Statement on Form S-1 for a secondary offering of approximately 12 million shares of common stock at $29.50 per share by certain of the Company’s stockholders, Driven Equity LLC and RC IV Cayman ICW Holdings LLC, each of which is a related party of Roark Capital Management, LLC. The Company did not sell any common stock in the offering and did not receive any proceeds from the offering. On September 8, 2021, the underwriters for the secondary offering exercised a portion of their over-allotment option and purchased 881,393 additional shares of common stock. The Company did not receive any proceeds from the exercise of the over-allotment option.

Income Tax Receivable Agreement

The Company expects to be able to utilize certain tax benefits which are related to periods prior to the effective date of the Company’s IPO and are attributed to current and former shareholders. The Company previously entered into an income tax receivable agreement which provides our pre-IPO shareholders with the right to receive payment of 85% of the amount of cash savings, if any, in U.S. and Canadian federal, state, local and provincial income tax that the Company will actually realize. The income tax receivable agreement is effective as of the date of the Company’s IPO, and the Company has recorded a liability of $156 million as of September 25, 2021, which is recorded under long-term liabilities as the income tax receivable liability on the consolidated balance sheet.

Stock Split

On January 14, 2021, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation (the "Amendment") to effect an implied 88,990-for-one stock split of shares of the Company’s outstanding common stock. In addition, the Amendment increased the number of authorized shares of the Company's stock from 10,000 shares to 1 billion shares (900 million shares of common stock and 100 million shares of preferred stock). All share and per-share data in the consolidated financial statements and footnotes has been retroactively adjusted to reflect the stock split for all periods presented. The Company does not have any shares of preferred stock outstanding.

Note 2— Summary of Significant Accounting Policies

Fiscal Year

The Company operates and reports financial information on a 52- or 53-week year with the fiscal year ending on the last Saturday in December and fiscal quarters ending on the 13th Saturday of each quarter (or 14th Saturday when applicable with respect to the fourth fiscal quarter). The three and nine months ended September 25, 2021 and September 26, 2020, each consist of 13 and 39 weeks, respectively. The Car Wash segment (primarily ICWG which was acquired in August 2020) is currently consolidated based on a calendar month end. See Note 3 for additional discussion regarding the acquisition of ICWG.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented have been reflected. The adjustments include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

These interim consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 26, 2020. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The results of operations for the three and nine months ended September 25, 2021 may not be indicative of the results to be expected for any other interim period or the year ending December 25, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes to the consolidated financial statements. Estimates are based upon historical factors, current circumstances and the experience and judgment of the Company’s management. Management evaluates its estimates and assumptions on an ongoing basis and may employ outside experts to assist in its evaluations. Changes in such estimates, based on more accurate future information, or different assumptions or conditions, may affect amounts reported in future periods.

Deferred IPO costs

Costs incurred that are directly related to the IPO, such as legal and accounting fees, registration fees, printing expenses, and other similar fees and expenses, totaling $9 million were capitalized and included within prepaid and other assets as of December 26, 2020. Upon completion of the IPO, the Company reclassified these costs, as well as an additional $6 million of IPO costs incurred during the nine months ended September 25, 2021, to Additional paid-in capital.

Fair Value of Financial Instruments

Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

•Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity as the ability to access at the measurement date;

•Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

•Level 3: Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

Financial assets and liabilities measured at fair value on a recurring basis as of September 25, 2021 and December 26, 2020 are summarized as follows:


Items Measured at Fair Value at September 25, 2021
(in thousands)	Level 1		Level 2		Total
Mutual fund investments held in rabbi trust	$	983	$	—	$	983

Foreign currency derivative liabilities not designated as hedging instruments	$	—	$	509	$	509


Items Measured at Fair Value at December 26, 2020
(in thousands)	Level 1		Level 2		Total
Mutual fund investments held in rabbi trust	$	704	$	—	$	704
Foreign currency derivative assets not designated as hedging instruments	—		227		227
Total assets measured at fair value on a recurring basis	$	704	$	227	$	931

Interest rate swap liabilities designated as hedging instruments	$	—	$	9,561	$	9,561
Cross currency swap liabilities not designated as hedging instruments	—		12,197		12,197
Total derivative liabilities	$	—	$	21,758	$	21,758

The fair value of the Company’s foreign currency derivative instruments are derived from valuation models, which use Level 2 observable inputs such as quoted market prices, interest rates and forward yield curves. Derivative liabilities are included in long-term accrued expenses and other liabilities in the Consolidated Balance Sheet.

The carrying values of cash, restricted cash, and receivables included in the Consolidated Balance Sheet approximate their fair value. The fair value of long-term debt is estimated based on Level 2 inputs using discounted cash flows and market-based expectations for interest rates, credit risk and contractual terms of the debt agreements.

The carrying value and estimated fair value of total long-term debt were as follows:


	September 25, 2021				December 26, 2020
(in thousands)	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Long-term debt	$	1,695,679	$	1,754,963	$	2,125,207	$	2,169,597

Accumulated Other Comprehensive Income (Loss)

The following tables present changes in each component of accumulated other comprehensive income (loss), net of tax.


	Three months ended September 25, 2021
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance at June 26, 2021	$	19,002	$	(57)	$	(91)	$	18,854
Net change	(30,903)		(1)		3		(30,901)
Balance at September 25, 2021	$	(11,901)	$	(58)	$	(88)	$	(12,047)


	Three months ended September 26, 2020
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance at June 27, 2020	$	(7,489)	$	—	$	—	$	(7,489)
Net change	(2,981)		552		—		(2,429)
Balance at September 26, 2020	$	(10,470)	$	552	$	—	$	(9,918)


	Nine months ended September 25, 2021
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance at December 26, 2020	$	16,834	$	(87)	$	(219)	$	16,528
Net change	(28,735)		29		131		(28,575)
Balance at September 25, 2021	$	(11,901)	$	(58)	$	(88)	$	(12,047)


	Nine months ended September 26, 2020
(in thousands)	Foreign currency translation adjustment		Cash flow hedges		Defined benefit pension plan		Accumulated other comprehensive income (loss)
Balance at December 28, 2019	$	3,626	$	—	$	—	$	3,626
Net change	(14,096)		552		—		(13,544)
Balance at September 26, 2020	$	(10,470)	$	552	$	—	$	(9,918)

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistency by clarifying and amending existing guidance. The Company adopted the ASU on December 27, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Note 3—Acquisitions and Dispositions

The Company strategically acquires companies and assets in order to increase its footprint and offer products and services that diversify its existing offerings. These acquisitions are accounted for as either business combinations or asset acquisitions, whereby the purchase price is allocated to the assets acquired and liabilities assumed, based on their fair values as of the date of the acquisition.

2021 Acquisitions

During the nine months ended September 25, 2021, the Company completed 25 acquisitions in the Car Wash segment, representing 66 car wash sites, each individually immaterial (the “2021 Car Wash Acquisitions”), which were deemed to be business combinations. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was approximately $427 million.

The provisional amounts for assets acquired and liabilities assumed for the 2021 Car Wash Acquisitions are as follows:


(in thousands)
Assets:
Cash	$	161
Right of use assets	2,487
Land and improvements	46,495
Building	232,375
Equipment	46,063
Inventory	311
Intangibles, net	550
Deferred tax assets	212
Assets held for sale	996
Assets acquired	329,650
Liabilities:
Accrued liability	356
Lease liability	2,587
Deferred tax liabilities	812
Liabilities assumed	3,755
Net assets acquired	325,895
Total consideration	427,236
Goodwill	$	101,341

We also acquired separately identifiable intangible assets certain of which have not presented above as the valuation has not yet been performed. All goodwill was allocated to the Car Wash segment and substantially all is deductible for income tax purposes.

In addition, during the nine months ended September 25, 2021, the Company completed four acquisitions in the Maintenance segment representing four maintenance sites, each individually immaterial (the “2021 Maintenance Acquisitions”), which were deemed to be business combinations. The aggregate cash consideration for these acquisitions, net of cash acquired and liabilities assumed, was $8 million.

The provisional amounts for assets acquired and liabilities assumed for the 2021 Maintenance Acquisitions are as follows:

(in thousands)

Assets:

Land and improvements